Pound to Euro (2025) Exchange Rate Forecast: 1.19 Amid Stronger UK Fundamentals

July 7, 2024 - Written by John Cameron

STORY LINK Pound to Euro (2025) Exchange Rate Forecast: 1.19 Amid Stronger UK Fundamentals

Foreign exchange analysts at MUFG expect the Pound to Euro (GBP/EUR) exchange rate will strengthen to 1.19 at the end of 2024 amid stronger UK fundamentals.

In contrast, ING expects a retreat to 1.1630 due to Bank of England (BoE) rate cuts.

GBP/EUR: Fiscal and monetary policy crucial after Labour landslide

With just a couple of seats to declare in the General Election, the Labour Party has a majority of 176 in the House of Commons.

Reaction has been muted, but with a positive Pound tone and GBP/EUR hit 1-week highs around 1.1830.

According to Laura Foll, portfolio manager at Janus Henderson Investors; "I'm hoping we're going back to an era where boring is good and politics treads lighter in people's lives. It will be a more gradual lifting (of confidence)."

Labour has pledged a responsible fiscal stance, but ING notes the challenges, especially with pressure to boost spending; “When it comes to the medium and long-term currency considerations, the budget restrictions the new government will face suggest a weakening of economic fundamentals for the pound and some depreciating pressure.”

According to Rabobank the outlook is more positive; “On the hope that UK politics can avoid the dramas and uncertainties associated with the Brexit, Johnson and Truss periods, we expect that GBP can continue its slow grinding recovery. We expect EUR/GBP to edge lower into year end and we view rallies to 0.85 as selling opportunities. (Buy GBP/EUR at 1.1765).

MUFG considers that the election outcome is positive for the Pound; “all in all and as we have argued in recent weeks, the huge majority for the Labour Party we believe is set to bring a positive political stability growth premium for the UK economy at the very moment when growth is beginning to accelerate as the energy price shock fades and positive real income growth returns.”

The bank expects monetary policy will dominate; “Bank of England policy plans remain the most important domestic driver for the pound, and our call for an August cut (16bp priced in) is the main reason for expecting a weakening in sterling.”

Credit Agricole is broadly positive on Pound fundamentals as a rate cut could underpin growth; “We believe that the biggest benefit from a majority Labour government would be the period of political stability that could support domestic investment and, together with the start of BoE easing cycle in August and the continuing growth of real incomes, could foster recovery of the UK economy in H224.”

It added; “This could support the GBP vs the EUR especially if the BoE proves to be less dovish than the ECB in the coming months.”

It is still cautious over the near-term outlook; “With some positives already in the price of the pound, it would take more upside economic data surprises to attract investors into GBP-denominated assets.”

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TAGS: Pound Euro Forecasts